SRI LANKA FINANCIAL SECTOR QUARTERLY UPDATE THIRD QUARTER 2002 · Highlights · Introduction : This note is prepared by the World Bank Colombo Office to review the trends of some of the key indicators which have an impact on the financial sector performance. The main indicators identified in the report are: (i) banking sector performance in terms assets, deposits, advances, (ii) interest rates, (iii) exchange rate movements, (iii) inflation and; (iv) capital market movements. The data is collected from Central Bank, individual banks, Department of Census and Statistics and Colombo Stock Exchange. If the data is adjusted by the respective organizations in subsequent reports, we will adjust our records accordingly. Performance of the Commercial Banking Sector : At the end of the 2nd quarter of 2002, out of the total assets in the commercial banking sector, the two state commercial banks (SCBs) accounted for 51% while private domestic banks (PDBs) accounted for 36%. In terms of deposits, the SCBs led with 48%, which was followed by the PDBs with 40%. The PDBs during the 2nd quarter recorded an increase of 2% in terms of assets, 3 % in terms of deposits and 1% in terms of advances. The four major private banks dominated the PDB category accounting for 83% of the assets, 91% of the deposits and 90% of the loans granted. The non-performing assets (NPA) as a percentage of total advances in the commercial banking sector was 16.5% at the end of the 2nd quarter 2002 as against 15.8% in the 1st quarter. The state banks' level of NPA has further deteriorated from 17.0% to 18.7% during the 2nd quarter. The deterioration of the NPA ratio was partly due to a significant reduction in the volume of credit to the government and a reflection of the economic downturn in the past one year. The People's Bank (PB) management has announced a major restructuring program to ensure long term financial viability of the bank. Performance of the Licensed Specialized Banks (LSB) : At the end of the 2nd quarter 2002, out of the total assets of the LSBs, the National Savings Bank (NSB) led with 59% followed by National Development Bank (NDB) (16%), DFCC Bank (12%), Regional Development Banks (4%) and the State Mortgage & Investment Bank (SMIB) (4%). In terms of their lending operations, NDB led by 33%, followed by DFCC (24%), NSB (19%) and SMIB (9%). The NPA as a percentage of total advances of the LSBs was 16%. Even though the two development finance institutions play a major role in long term lending, access to resources is limited and both are exploring the possibility of consolidating their development finance and commercial banking operations. Financial Sector Quarterly Update:3rd Quarter 2002 Open Market Operations & Interest Rates : During the 3rd quarter of 2002, average prime lending rate has resumed its downward trend seen in the first quarter and ended up at 12.6% in September as against 14.0 % in June reflecting lower rates in the call market. In July, the Central Bank reduced its reverse repurchase rate from 13.75 % to 12.75 % and its repurchase rate from 11.50 % to 10.50 %. The short term treasury bill rates have also reflected a decline with one-year Treasury Bill rate dipping down from 13.7% in June to 11.3% in September. The offer rates in the interbank money market have declined from 12.4-12.8% range to 10.1-11.1% range. The downward trend observed is mainly due to the high liquidity in the market. The pressure in the money market has significantly slackened due to less government borrowing while the private sector investments are yet to reach the desired levels. The government continued to issue Treasury Bonds of longer term maturities of 5 to 6 years. Exchange Rate Movements: The exchange rates have stabilized and shown only a marginal depreciation. This is a reflection of the weakening of the Dollar. Central Bank has been buying foreign exchange in the market to strengthen its forex reserves but this did not have a major impact on the Dollar. The political stability apparently has attracted foreign currency remittances and export proceeds have helped to stabilize the exchange rates. The Rupee depreciated marginally against the Dollar by 0.1%, Sterling Pound by 2.0% and SDR by 0.01% while Euro and Japanese Yen appreciated by 1.0%. The release of the final tranche of the IMF Standby loan too contributed to the stability seen in the market. Inflation: The inflation has shown a declining trend in the 3rd quarter. The Point-to Point change in the Colombo Consumer Price Index dipped down to 7.4% in September from 10.7% in June and the 12 month Moving Average Index declined to 10.4% from 11.4%. This was mainly due the stabilization in the food prices. Capital Market Movements : The capital market, which had been in the doldrums since 1994, reflected a remarkable recovery with the election of a new government. The investor sentiments further strengthened with the initiation of peace negotiations in Bangkok and the continuing conflict free environment. The ASPI increased from 711 to 857 while both the Milanka and the MBSL Indices reflected further significant increases by 20% and 23% respectively reaching 1464 and 1815. Monthly turnover ranged from Rs. 2.0 billion (US $ 20.7 million) to Rs. 5.1 billion (US $ 53.0 million). The foreign investors too have been rather active in the market with foreign purchases recording a net inflow of Rs. 906.0 million (US $ 9.4 million) during the 3rd quarter. The market capitalization further increased from Rs 144.0 billion to Rs 174.0 billion. All sectors showed favorable performance. With the continuation of the cessation of hostilities and the peace negotiations in Bangkok, the investor confidence has significantly improved. The bourse has been kept active mainly by retail investors and specially by a few high net worth investors. Report, Graphic Design &Concept : Sriyani Hulugalle; Graphs Update: Krishantha Kumarasinghe 10/10/2002 2 2 3 200 Quarter 3rd & s etavi s Update: anoL citsem Pr ankB 40% Do BI 9% k SM Quarterly anB al Sector cire secnav escnavd B % A NS 19 B & % ND 33 m moC Ad Financial 3: ngier s snaoL 11% erugiF Fo ankB eta cr St mmeoC sknaBlia BSL: s 49% B A2 8% RD System reugiF rseh 7% Ot CC % 24 DF ransactions.t 2002 Banking arter stisopeD etavi ictsem Unit s % Pr ankB 40 Do the Qu of ndo knaB ankingB Sec cialre Currency of m Structure end moC- ngier s % Foreign Fo ankB 12 and the 2 eta s % at Market As erugiF St liacremm ankB 48 Co ticsem Do 1: ectl ref banks. B % Data Table NS 59 2002. commercial 2, stessA etavi ci st skn % tses me Quarter dividualin Pr Ba 36 As to k Do BSL sB and 4% anB RD al A-1e relate cire urgiF rs taad he 5% 1, Department Banks Ot m moC ngier Banks skn Table % ed 13 BI of 1- Fo Ba e laicr C 4% Supervision mercial Com erugiF at skn % alizi % SM St mme 51 Ba 12 B DFC % case nk 16 Ba Co ND the Spec in Only: CBSL: Licensed Licensed Note Source 2 4 200 Quarter 3rd Update: - - - - - - - - Quarterly sraeY ieldY % 14.18 14.38 13.00 v.A - - - - - - - - 6 s Sector Mn 500 1,000 2,000 earY3 Volume Rs. - - - - - - - Financial sraeY ieldY % 14.23 14.34 14.34 13.36 12.93 nte s v.A - - - - - - - 5 mnre earY2 Mn 200 1,500 3,470 1,250 2,000 Volume Rs. ovG s - - - - - - of ayD sd 364 Bon y sraeY ieldY % 13.79 13.89 13.92 12.42 dne v.A Tr seitiruc - - - - - - 4 Mn 660 2,000 1,000 2,700 Treasur Volume Rs. dleiY:5 Se s ayD 821 e Operations sraeY ieldY % 14.50 14.50 14.50 14.30 13.98 13.77 13.76 13.79 13.73 13.31 12.20 urgiF s v.A ayD 91 3 Mn 500 500 846 16 15 14 13 12 11 10 1,340 2,000 2,100 1,000 3,250 3100 1500 2000 Market Volume Rs. en Op 2: sraeY ieldY % 14.94 14.94 13.73 14.08 12.74 11.94 v.A 2 Mn 500 1,000 1,572 3,000 2,000 1,500 Volume Rs. Table rebmec hcr De Ma uneJ sy ieldY % 14.42 13.93 13.74 13.71 13.61 13.61 13.52 14.00 13.72 12.96 11.42 11.33 Da v.A estii ur 364 Mn 598 810 107 35 990 1,522 2,240 2,682 3,970 2,258 2,532 2,159 Volume Rs. ecs.tvoG tyiruceS eldiY of e th rebmev y uarr y Bills sy % 13.85 13.61 13.27 13.10 12.99 12.90 12.87 13.14 13.17 12.68 11.34 11.25 ev fo No ebF Ma y Da v.A tyir urC tua M 182 Mn 305 100 150 400 290 91 231 415 483 562 563 897 Treasur Volume Rs. deliY y % Lanka 4: e sy eldiY Sri anuarJ % 13.76 13.39 12.92 12.91 12.72 12.75 12.83 13.19 12.98 11.98 10.99 10.88 of guriF rebot v.A Oc 2002 lir Da Ap 91 Bank Mn 1,599 1,076 2,514 2,306 2,116 2,268 2,364 3,327 1,955 2,242 2,780 3,602 8. 8. 8. 8. 8. 8. Volume Rs. 15 14 13 12 11 10 Central h Sept Jan y Mont 2001 Nov Dec 2002 Feb March prilA Ma June July ugA Sept Source: 2 5 200 Quarter 3rd Update: 75.12 31.11 17.10 88.10 21.11 36.10 501.1 752.1 00.18 A/N A/N 0.6 0.10 02.8 Quarterly peS 632.1 131.1 850.1 001.1 131.1 740.1 05.11 57.12 008.1 Sector guA 00.11-004. 002.1 06. 00.1 209. 68-.7 Financial 34.31 131.1 880.1 960.1 461.1 780.1 05.11 57.12 008.1 yluJ 00.12-004. 004.1 07. 01.1 499. 25-.8 404.1 362.1 042.1 452.1 972.1 912.1 50.11 75.13 008.1 enuJ 00.120-0.4 004.1-009. 07. 01.1 169. 56.13 27.12 17.12 38.12 09.12 77.12 501.1 853.1 00.18 ayM 002.10-0.4 00.14-000.1 0.7 0.11 18.9 74.31 00.12 00.12 72.12 64.12 71.1 5.11 853.1 00.18 lirpA 002.1-00.4 00.140-00.1 0.7 0.11 00.10 Rates 55.13 38.12 35.12 34.12 56.12 35.12 051.1 563.1 00.18 hcraM 002.1-004. 00.140-0.10 4.8 0.12 11.10 423.1 402.1 232.1 332.1 562.1 022.1 21 41 008.1 48. 02.1 440.1 Interest 3: beF 00.12-004. 504.10-5.9 12 14 48. 03.1 Table naJ2002 48.31 352.1 442.1 562.1 752.1 222.1 008.1 00.120-04. 504.1-50.9 530.1 13 31 88 11 62 56 12 14 00 14. 13. 12. 13. 13. 12. 18. c 00.210-0.4 05 48. 87 14.-509. 0.13 10. ka De 82.14 13.1 31 12.13 53.13 68.12 12 14 00.23 Lan v 015.1-00.4 78.1 4.8 0.13 10- 08.10 Sri of No10-t Oc 48.41 25.13 06.13 19.13 53.1 82.1 21 41 00.23 005.1-004. 68.1-10 4.8 0.13 99.10 Bank 0 0 ntraleC rtment,a setaR Dep )%(setaR ngdienLemirPegarevA )%()ROBILS(etaR stispoeDsngivaS stispoeDsngivaS stispoeD edxiF.ry1 )RDWA(etaRtispoeD Research ic ng ndieL nkaBlaicermmoC estaRgnindeLemirPtsewoL erffOknaB ertnIaknaLriS yaD1 yaD7 hntoM1 )%()vA(etaRtekraMyenoMl )%(etaResahcrpueR ed Econom Ca nkaBlarnteC )%(etaReshacurepResreveRBC )%(etaRknaB )%(setaRsngivSa nkaBlaicermmoC stisopeDdexiF.rY1knBalaicremm Co nkaBsngivaSlanoitaN nkaBsngivaSlanoitaN ghtieWegare Av Source: 2 6 200 Quarter 3rd peS Update: )vA(et Quarterly oneyMlalC ugA y Ratekra ulJ and Myeno Sector neuJ Mll atesR ya Ca M Financial erffO ankB- teaRtekraM lirpA hcra htno M1 M nterI ebF a naJ2 anklirS- 002 ayD7 ceD 7e nd )RD ovN yaD1 setaRgni guriF Lee W tcO 16 12 8 4 0 tesaRtse mriPe ag ternI etaR (AetaRtiso etaRtis % ealR 8: e anBliacre ervAk ing nd epDdet poeD Lee ighe ed m imrP We htige ag guriF moC aleR ervA WlaeR peS guA yluJ enuJ esatRgnid )RD seatRti yaM lirpA 8 6 4 2 0 os enLemirPe 16 14 12 10 -2 -4 -6 h ager ont M epD/ WA(eatRtiso hcraM v ngdi Ak epD beF Len anB 6:er naJ 2002 guiF ceD alciermmoC setaRgnidneLemirPtsew )%( edthgei Lo etaRknaB We agervA voN 10-tcO 25 20 15 10 5 0 % 2 7 200 Quarter 3rd Update: Euro.eht Quarterly with Sector rrencies Financial cula tionan their acedl SDR 117.86 117.62 116.74 116.14 116.25 119.03 121.12 123.98 126.98 127.34 127.69 126.99 rep st Areayc R SD 83.11 82.58 82.24 80.36 81.31 83.73 85.73 90.02 94.94 94.92 94.75 93.97 Euro Curren Movemen Euroeth or 76.00 76.00 71.00 70.00 70.00 72.00 74.00 78.00 80.00 81.00 82.00 79.00 of ankaL estaR Eu Rate JPY* h Sri ge of *Y t n members JP Mo 12 Bank BSG 134.69 132.75 135.01 131.94 132.83 136.38 139.28 140.81 146.80 150.33 148.96 150.00 all ralt anhcxE:9 Exchange er S 4: 2002, Cent, guiF GB 91.95 93.03 93.07 93.45 93.68 95.57 96.07 96.09 96.08 96.19 96.25 96.19 Table US$ January partmeneD $ ct From US of ovN ecD Jan Feb arM April ayM 0 0 0 0 0 0 June July Aug Sep 16 15 14 13 12 011 10 90 80 70 60 50 JPY; seepuR End 2001O 2002 Research 100rep mic Rates ees Econo Rup Exchange Note: Source: 2 8 200 Quarter 3rd 8. Update: 50 pe .80- 4.7 4. A/ A/ A/ 10 N N N 31 S 6 Quarterly 5. 1. 4 7. 3. ug A 173 7.2- 10 11 9.9 30 12 Sector 1 5. 8. 1 6 y 2. 9. 3. Financial ulJ 263 8.0- 10 1.1 31 10 12 1. 7 5. 1 3 ne 92 .82 4. uJ 0.1 11 32 133 1.1 2.1 A/M 4 7 3 ya 203 .64 10 1.1 9. 2. 2. onthm M 30 11 12 x 12- li 63 2001-2002 pr 30 .21- 3 2 5. 8. 2. 8. 2.1 denI A 023 10 12 7 8. 4. 7 1. Index 7. 1. ecirPre nt ra htn M 093 .50 11 2.1 063 14 12 um 8. 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